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Why Is Walmart Making Moves into the Fintech World?

Why Is Walmart Making Moves into the Fintech World?

It was announced last week that Walmart is launching its own fintech startup in partnership with Ribbit Capital. In the latest in a series of moves that diversify the retail giant away from its core business, the new venture will combine Walmart’s retail knowledge and huge customer base with Ribbit’s fintech expertise.

“For years, millions of customers have put their trust in Walmart to not only save them money when they shop with us, but help them manage their financial needs. And they’ve made it clear they want more from us in the financial services arena,” Walmart US president and CEO John Furner told the press. He added that the new venture will help Walmart “deliver innovative and needed option to our customers and associates—with speed and at scale.”

Specific details about the startup, including its name and the specific types of financial services it will offer, are yet to be revealed, but what is known is that it will be majority owned by Walmart.

Experience in financial services

While fintech is a new arena for Walmart, financial services have long been part of the retail giant’s slate of offerings. The company already provides the Walmart Capital One credit card, the prepaid Walmart MoneyCard, and in-store check cashing. Additionally, through its controlling stake in Flipkart—India’s e-commerce equivalent to Amazon—Walmart also has business in digital payments.

Likewise, Walmart’s strategic plays into other sectors almost make the move to fintech feel like a natural progression. For instance, partnerships with Shopify and ThredUp were struck to broaden Walmart’s product offerings and boost online channels. These and other partnerships position the company in competition with Amazon, while expansion into health care, pet care, and advertising further demonstrate its diversification.

Walmart also has its eye on TikTok. In December, the company piloted what it touted as the first “shoppable livestream”—during the stream, viewers could shop for Walmart fashion items featured by TikTok creators without ever leaving the app. Walmart’s ambitions with regards to TikTok underscore its desire to reach younger, Gen Z customers—an aim that could be furthered by fintech investment.

However, despite its presence in so many sectors, Walmart will need to rely on Ribbit, whose portfolio includes Robinhood, Affirm, and Credit Karma, in order to strategically enter the fintech space.

“Walmart has a relationship with millions of customers and associates built on trust, security and integrity,” Meyer Malka, managing partner of Ribbit Capital, said in a press statement. “When we combine our deep knowledge of technology-driven financial businesses and our ability to move with speed with Walmart’s mission and reach, we can create and deliver financial offerings that are second to none.”

Support and skepticism

The Walmart-Ribbit Capital agreement appears to have all the makings of a successful one, although much will depend on the specifics when more details of the startup are revealed.

The announcement of the new fintech startup has met with differing opinions. In support of the move, Bank of America’s Robert Ohmes wrote, “Financial services represent yet another monetization opportunity that could be meaningful in supporting long-term profitability for Walmart as third parties increasingly pay for access to its growing online traffic.

“Importantly, we see Walmart’s growing digital advertising business among its most strongly positioned businesses to benefit from continued expansion in its digital ecosystem, in addition to Walmart Payments.”

Support has also come from Moody’s Vice President and Senior Credit Officer Charlie O’Shea, who wrote in a letter to investors, “Walmart’s newly-announced fintech joint venture with Ribbit Capital will provide myriad growth opportunities, with the leveraging of its massive customer base at the center of the initiative.”

“Walmart has been slowly and tactically expanding its financial service offerings to its customers, and measured expansion of these capabilities makes sense as it will deepen these all-important customer relationships.”

One-quarter of Walmart customers unbanked

Yet, on the other side of the argument, some critics believe a foray into fintech further drags Walmart away from its core competency and capital allocation discipline, which could ultimately harm the company’s stock value in the long term.

Speaking to StreetInsider.com, John Zolidis, President at Quo Vadis Capital, said, “We see WMT’s pursuit of TikTok, venture capital plays in India, the launch of a subscription delivery program, attempts to become a healthcare provider, acquisitions and divestitures of various digital brands, and now this foray into ‘next-generation digital financial products’ (we hope this does not mean bitcoin) all to be tangential to the core business.”

Zolidis also pointed out that around one-quarter of Walmart’s customers do not have a bank account, while around 50% do not have access to credit, adding, “Without being judgmental, we imagine the reasons these customers do not have bank accounts or credit would likely also mean they will have little use for ‘next-generation financial products.’”

If Zolidis is correct, is Walmart being disingenuous about the desire to “manage the financial needs” of millions of customers when many wouldn’t be able to access these fintech services? Or will these “next-generation financial products” indeed help those currently without bank accounts and access to credit?

For what it’s worth, fintech can help the unbanked in certain circumstances—many fintech companies offer traditional banking products, but at considerably lower costs compared to traditional banks. In addition, traditional bank products often have minimum price thresholds that are way too high for unbanked customers to access. Many fintech companies’ products have lower (or even nonexistent) price thresholds. Other fintech companies may offer financial products that unbanked customers may be more likely use, like loan advances and partial salary taking.

Walmart’s move into fintech may play out as a smart decision that allows it to serve its core customers more comprehensively. However it unfolds, the decision is another bold move to diversify, and time will tell if it pays off.